Agriculture Committee on Dec. 7th, 2006

[The Chair, Conservative, Gerry Ritz]

We'll go to the opening round of questions.

Mr. Goodale, welcome. Five minutes, please.

[Ralph Goodale, Liberal, Wascana, SK]

Thank you very much, Mr. Chair.

Welcome to Mr. Measner and Mr. Ritter. I'm glad we had the opportunity to hear your testimony today.

Let me say that in pretty typical fashion, Mr. Ritter, you have tried to overcome differences, to find some common ground, and to find a way out of what is obviously a very difficult situation that could have some profoundly negative consequences for Canadian farmers, especially in western Canada. So I appreciate your constructive approach.

Some of my questions have been addressed in at least part of what you said, so I'll maybe run through these all together and then between the two of you you can decide how to respond.

During my time as Minister responsible for the Wheat Board a number of years ago, in consultation with buyers around the world, which I had on a very regular basis, I found two things. First of all, those buyers typically did not like the prices the Canadian Wheat Board was seeking, because from the buyer's perspective, they were always arguing that you were asking too much, which I suppose is typical of a buyer. But they did like the board's consistency in terms of its behaviour, the long-term relationships that the board built up, the fact that they could deal with certain people in the sales staff on a consistent basis over time, that the board was very good at providing before-market and after-market services. And accordingly, in that relationship they had a great deal of confidence not only in the product but also in the personnel.

I wonder if you could tell us, as my first question, whether those factors are still critical in terms of the board's success internationally and whether or not the current controversy and the public risk that the board may be diminished or may disappear is having an impact on buyers in the international sphere.

Secondly, domestically, when addressing this issue of confusion or potential future confusion in the board's mandate, people involved in, for example, the milling sector, the malting business and so forth, either in Canada or in the United States, would always say they could probably make either system work from their perspective as a buyer of a certain product. But what they worry about is having a little of both, where they would never know exactly where they would stand. I wonder if you could comment on that situation.

Thirdly, the allegation has been made that the board has not done contingency planning in relation to a number of matters, but most especially what happens in the event that a plebiscite succeeds and therefore the process and the act is triggered, and so forth. Reference was made to contingency planning.

Mr. Measner, I think it would be important for you to give us the assurance in as much detail as you can, as the chief executive officer of the board, that this contingency planning has been in fact undertaken and that the board is in a position to cope with unforeseen circumstances should that contingency arise.

Finally--I think this question is most especially directed to Mr. Ritter as chairman--I wonder if you could explain the practical process that you go through to choose a chief executive officer of the Canadian Wheat Board. What is the process by which that is done--in particular, the process by which Mr. Measner was selected? Can you speak in specific terms to the performance of the current chief executive officer? I know you've offered some general comments, but I think it's important for members of Parliament to hear your views as chairman of the board. What do the directors think of the job Mr. Measner is doing?

[The Chair, Conservative, Gerry Ritz]

Gentlemen, you have 30 seconds to reply. No, I won't hold you to it.

[Adrian Measner]

I'll start and maybe just answer the first couple of questions there.

Certainly the brand, what buyers expect from the Canadian Wheat Board, from western Canadian farmers when they buy their product, is consistency. They expect long-term reliability. There's no question about that.

I talk to buyers on a regular basis who say they do not want to buy U.S. grain. They do not know what they're going to receive when they buy that grain until they actually get it to their mill, and they don't like the hassle they have to go through, after they get it, trying to correct some of the inequities that are there.

So, no question, that is the brand we have; 80% to 85% of the buyers in the last survey we did indicated that our service was as good as or better than the competition, and 90% to 95% said that our products were as good as or better than the competition. So we have a very strong brand, and one that customers are looking to us for. They're finding this period very difficult, because they're trying to understand why we're making the changes we're making, how this is going to impact them, whether they're going to have a business partner that they can deal with one year or two years down the road, whether they have to start looking for alternative measures, alternative suppliers, or whatever the case may be. It's a very difficult period for them, as it is for our organization, and the faster we can get certainty around this issue, the better I think Canada is going to be, and certainly the better western Canadian farmers are going to be.

On the domestic side, I do agree with the comments. What the millers and mulchers have said to us is that they appreciate the supply assurance. There are very difficult markets each year, and the dynamics change, and we've always ensured that the domestic millers and mulchers have supplies and are able to satisfy the domestic demand as well as their export demand on the products that they do export.

They indicate that they could live with either system. They do appreciate the system that they have in place with us today and the assurance and certainty that we give them, both on a pricing side and a supply side. They have indicated that they would work with either system, if that were the case, but there's no in between. They do not want to go through a process in between. And I guess after reading the task force report that the government put together, that was the conclusion they drew too. There is no in between; it's either an open market or it is single desk marketing.

You have my assurance as CEO that we have looked at contingency planning very seriously. We are looking at the barley issue very seriously. We will be ready for whatever changes are going to be made there. I do want to know what those changes are. If there are going to be changes, I want to know whether there are going to be guarantees. If we're involved in barley, I want to know if we're going to be able to use the contingency fund to backstop that.

There are just a lot of questions, and that's why I've called on the minister to provide some clarity, so that we can move forward productively as an organization.

[The Chair, Conservative, Gerry Ritz]

Mr. Ritter, do you have anything to add?

[Ken Ritter]

I want to add about how we select our CEO.

The process began when our then transitional CEO, Mr. Arason, indicated that he was resigning. So as a board we felt very strongly that we had to engage the best practices we possibly could, one that any other corporation in this country would use in order to find a CEO.

We then did a search for, actually, search firms and found the one that we liked for this job. That was the search firm of Korn/Ferry, which is headquartered in Calgary. They then drew up a list of potential candidates, and all I can tell you is that the list had over 25 names. You must recognize that people who were on the list do not want their names divulged, because you're certainly not looking for people who are unemployed; you're looking for people who have a record and can do the job.

There was a rigorous assessment of all the candidates. They appeared before us to answer tough questions that we provided and that were provided to us by our search firm.

Through that whole process, Mr. Measner came to the top. Actually, as the final step of the process, we had the two finalists appear before the full board and give their presentation as to their vision and capabilities and so forth, and the board voted, in a democratic way, to have Adrian as their president and CEO.

In conjunction with that, Mr. Measner doesn't just keep his job without evaluation. Each year, he sets out the goals that he is to achieve, and the board approves that. Then there is a rigorous assessment process of his performance. Adrian's performance has been excellent, and he has the support of his board of directors.

I can just identify one thing that I wish to share with this committee. Adrian is a good man. He is honest. He has integrity and he tells the truth. That is very clear in all assessments that have been made of him.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Ritter.

Mr. Roy, five minutes, please.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Chairman. My questions will be shorter than those of Mr. Goodale. That way, the witness will have more time left to answer.

My question is nevertheless important. It is a fundamental question I have been concerned with since the beginning and that I have asked of all witnesses who have appeared before us. We have heard contradictory versions. You have raised indirectly, as did Mr. Goodale, my main concern.

If the single desk for barley is abolished, what will the consequences be for producers? This is my basic concern. Will it be possible for an individual producer to negotiate a better price than what he would get through the board? Are producers individually in a position to get prices that are as good as those of the board?

Mr. Goodale asked that question and you did not provide a complete answer: are individual producers in a position to compete on the world markets in the absence of a single desk? This is my concern.

What will the impact be on producers? Are we going to see prices drop? Will we not be faced with increased competition between all those producers so that, ultimately, prices will decrease? This is my concern.

[Ken Ritter]

Mr. Chair, in response to the witness, we have an order in council now that may or may not cover the kind of answer I'm going to give. But let me just answer that I can speak from my heart here on this matter.

This is an issue that farmers understand, sir. They all know what their business interests are. We have director elections that determine which position is the accurate one and which position they want to see come about.

The interesting thing is that a large part of the Battlefords—Lloydminster constituency is now voting in a director election, the outcome of which we will know on Sunday evening. Cypress Hills—Grasslands is a large part of the vote.

Farmers know their business needs. They know what the CWB is about. They make an assessment on that very question that you are asking. We have said as a board, time and time again, that we will always follow the will of what farmers say, what they want us to do, and certainly what they understand is in their best business interest.

[The Chair, Conservative, Gerry Ritz]

Mr. Measner.

[Adrian Measner]

Again, I am going to be careful here, because there is a director in place, and I respect that.

So I am going to answer with my personal opinion, which I think is acceptable, and that is based on my experience at the Canadian Wheat Board.

In my personal opinion, it is not going to be possible, if we have a number of individuals trying to negotiate the contracts, to get the prices that the single desk does for farmers. I see it in a number of markets. The malting barley market internationally is a very small marketplace with only two or three very large players. Certainly if we turn the supplies of western Canada loose on that marketplace, I think it will depress prices, and farmers will be worse off because of that action.

We continue to try to extract premiums from that marketplace with the single desk, and I think we've been successful in doing that. There have been studies. The Schmitz and Gray study is the most recent that actually put a value on that.

So in my opinion, they would not be able to get the prices that are got through the single desk. But that is my opinion.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Is it not also the board's role to control the quality of the product shipped to the international market? If we have a multitude of sellers, is this not going to affect the quality of the product we export?

[Adrian Measner]

That's the other concern, and that's what we hear from buyers who buy from different systems. They're not able to get the quality of product and the quality control that they get from Canada when they buy in the U.S., European, or Argentine marketplace.

That's a very important factor in the brand that western Canadian farmers have around the world. They have a very good-quality product that is consistent from one shipment to the next. I think from our experience in other international marketplaces that have opened up their marketplace, it is not possible to maintain that quality in that other environment.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you.

[The Chair, Conservative, Gerry Ritz]

Thank you, Monsieur Roy.

Mr. Menzies, five minutes, please.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair, and thank you, gentlemen, for appearing today.

I do want to take exception to what I'll call the hollow argument that the world cares so much about the monopoly in this country. Very frankly, they don't care squat whether we have a monopoly or whether we have an open system. What they care about is price and quality, and the Canadian Wheat Board has no control over either.

It's the farmers who grow the grain who provide the quality. It's the Canadian Grain Commission that grades the grain to make sure that when it's exported, that quality standard is up to the specs of that particular sale.

I might add in here that at that point in fact over 60% of the grain--wheat and barley for human consumption--that leaves Canada is actually sold by the private trade. So the fearmongering that you folks have been throwing out there that things are going to fall off the end of the world, that the sky is going to fall, is pretty much false.

The other thing you don't have control over, which you are purporting to, is the price. The Chicago Board of Trade and the Minneapolis Grain Exchange set the price.

The other argument I've heard out there quite a bit lately is that the Port of Churchill will collapse, the town of Churchill will collapse, if we lose the monopoly. I have to then ask the question, how much have I been subsidizing, out of my grain cheques, the livelihood and the Port of Churchill? That's a pretty hollow argument. If that is the case, then it should be all of Canada subsidizing the Port of Churchill. If it is a viable place to ship grain out of, which I argue it is, then it should be able to compete on a level playing field for a price for exports.

So that argument doesn't ring very true to me.

I have one other question. When the directors of the board are acting as representatives of the board, does the code of conduct constrain them from partisan political activities, and if so, who monitors? If not, what are the consequences if a director is found to be outside of that jurisdiction?

[Adrian Measner]

Respectfully, I disagree with those comments, and I would like an opportunity to respond to each one of them.

We do do it differently from the competition. We do provide better service and better technical support. I hear it from customers on a regular basis. It's not something I'm making up, it's the feedback we're getting from customers. They like what they're getting from Canada. They like the products that farmers are producing.

I agree with you that farmers have been very disciplined in producing the products that customers want. But part of our role is to ensure that the feedback goes back to farmers and that they understand what products are asked for.

We provide technical support both before and after the sales service. They don't get that from other buyers, and they appreciate that.

We show them how to use the products in their marketplace. We show them how to get value from those products. They appreciate that.

So I don't agree that the other systems can provide this, or that this will be there under the new system, because it's not there in the other systems today.

You say that we can't control price. I agree that we can't control the overall international general price or the futures market. The U.S. is the largest exporter on the wheat side. But we are able to extract premiums in a number of marketplaces. We can offer our wheat at a price higher than the U.S. wheat is being offered at, and return that to farmers. That's very important. It's what the single desk allows you to do. We don't sell one price to everybody. We differentiate prices. We differentiate based on the quality, based on the customer, and based on the circumstances in that marketplace to try to maximize that value for farmers.

So it is different, and we do have some control over that premium. We just don't have control over the overall international price on wheat.

It is different with malting barley and durum. We are a very large player in the marketplace on those two. If we're aggressive in that international marketplace, it could have a serious impact on the price. I think if you open it up and allow four million tonnes of Canadian durum to find its way onto that international marketplace, it will have a serious impact on those prices.

We have chosen to use accredited exporters as part of our marketing mandate. You indicated it's about 50%. It does vary each year, but that's a reasonable number. We do about half of it direct. We do about half of it through accredited exporters. In all cases, we control the pricing of the product. We ensure that the farmers get maximum value back to them in that sales transaction.

It is very difficult--and this is very important when you talk about the open market environment--to have offices around the world. It costs us somewhere between $600,000 and $900,000 to have an office an Tokyo and an office in Beijing. If we had offices in every country around the world, as some of the large multinational companies do who are dealing with a lot of different products and a lot of different areas, that would be very expensive. We have chosen a route that has some of the grain marketed through accredited exporters, some marketed direct. We think it's a very cost-effective way to do it.

This also helps us to manage risk. There is in certain markets tremendous political influence--I would say that perhaps Iraq is one of those markets--where we have to be careful how we approach that marketplace from the Canadian perspective. We use accredited exporters in that case because we're not comfortable taking on the risk that goes with that.

On Churchill, I have said--you can even quote me on this--that I think the future with regard to Churchill is going to be very difficult without the Canadian Wheat Board. I say that because we have to direct grain to Churchill. Companies do not want to ship grain to Churchill. The larger companies own terminals at Thunder Bay, at Vancouver, and in the St. Lawrence, and they would like grain flowing through their terminals. You are not subsidizing anything that goes to Churchill. We do it because it's the best economic return for farmers when we ship through Churchill. If we're not in control and not able to direct that grain through Churchill, the number one priority in those companies will be to flow it through their own terminals, which we see on non-CWB crops. We are 80% of that Port of Churchill usage.

[The Chair, Conservative, Gerry Ritz]

Mr. Ritter, have you any points to add?

[Ken Ritter]

Thank you.

In response to your question about political activity, Mr. Menzies, I'd just like to read to you, through the chair, subsection 4(2) of the CWB Act: “The Corporation is not an agent of Her Majesty and is not a Crown corporation within the meaning of the Financial Administration Act.”

When did that change? That changed on December 31, 1998. What flows from that? Well, we have ten-director elections. Directors get elected from, I'm sure, virtually every political party that is represented, save for one.

So where does that go? The board of directors looked at this issue and asked a fundamental question: do we have any kind of political donation policy like every other company our size would have? We've had to look at that a few times, and we have a very minimal one now. I think it has about $6,000 a year. Don't hold me to the number, but it's a very minimal one. We have a balance in how that money is spent.

You ask, second, do we ask directors to spin for any political party? Absolutely not. At the same time, directors are free to express their own views. I'm chair of a board that represents everybody, and there are all kinds of political viewpoints and sub-viewpoints on various issues. That's just the reality of being in an organization that recognizes plurality.

[The Chair, Conservative, Gerry Ritz]

Thank you, Mr. Menzies.

Mr. Atamanenko, five minutes, please.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thanks again for being here.

In your statement one of you touched upon the fact that we really have not had an in-depth economic analysis of what the future may bring. Do you think this move on behalf of the minister is going ahead too quickly, without extensive research, even though we have different studies? Would your five-point plan, then, address that lack of research?

That's the first question.

[The Chair, Conservative, Gerry Ritz]

Mr. Atamanenko, just to be clear, are you asking for a timeframe on the five-point plan? Is that what you're saying when you're talking about—

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

No, I'm asking if in fact there isn't enough economic analysis. Is the five-point plan a first step in trying to come up with something?

[The Chair, Conservative, Gerry Ritz]

A point of clarification. Thank you.

[Ken Ritter]

I think any time major change occurs it should be backed up with good solid analysis. Our view is that if people think there's some kind of a political game to be played in whatever, let's have a group that represents the spectrum of views and let them come up with some kind of analysis of what the situations would be. We think any good business would look at issues that way, and we would recommend that.